Economics, Econometrics and Finance
4 years ago

Optimal tax rates could boost U.S. economy and benefit society.

1 view
Optimal Capital Income Taxation With Incomplete Markets, Borrowing Constraints, and Constant Discounting
S. Rao Aiyagari

Paper Summary

The study explores how to tax capital income optimally in the long run. While previous research suggested zero tax is best, this study shows that a positive tax rate is better in models with different agents, incomplete markets, and borrowing constraints. The findings suggest that current tax rates on capital and labor income in the U.S. may be close to optimal in the long run.

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